Facebook may pack surprise at event

Social network rallies as analysts remain stumped about gathering

SAN FRANCISCO (MarketWatch) — Facebook Inc. is hosting a media event at its Silicon Valley headquarters on Tuesday, though analysts remain in the dark about what the company has in store and the stock has rallied to a six-month high.

Reuters

Facebook, with CEO Mark Zuckerberg, has invited reporters to an event at its Silicon Valley headquarters on Jan. 15.

The company invited reporters to “come and see what we’re building” on Jan. 15, which is just two weeks before its fourth-quarter earnings report. Most analysts have no idea what to expect, even as current speculation covers a range of possibilities: new advertising products, partnerships or e-commerce initiatives, along with the long-shot option of a “Facebook phone.”

The invite sparked a rally for Facebook
FB, -0.31%
shares, which jumped 9% between the announcement of the event and the close of trading Friday, when the shares ended at $31.72. That put the stock on a fresh six-month high and up nearly 20% since the year began.

Among those not expecting any big news is Wedbush analyst Michael Pachter, who said he doesn’t think Facebook will unveil anything big so close to its earnings report, scheduled for Jan. 30

“I have low expectations,” he told MarketWatch.

But Topeka Capital’s Victor Anthony said that the fact that Facebook has built up expectations for the event with its intriguing invitation suggests the announcement could be “meaningful,” especially given how the market has been reacting to the social-networking giant since it went public last year.

“They know how volatile the stock is,” Anthony told MarketWatch. “I’m sure they want to get that stock back up to $38. It’s a critical level for them.”

The analyst was referring to the price of shares for Facebook’s initial public offering in May. Controversies around the IPO and questions about the health of the business drove the stock down to the high teens within a few months, though it has steadily recovered lost ground amid a more optimistic view about Facebook and its prospects.

The speculation comes with more upbeat sentiment surrounding the social network. This week, Cantor Fitzgerald named Facebook to its list of “highest conviction calls” for the year, citing the company’s momentum in the mobile-ad market.

Analyst Youssef Squali affirmed a buy rating with a $33 price target, saying in a note: “We view Facebook as a prime beneficiary of growth in mobile advertising/e-commerce and view its shares as an attractive play on this trend.”

J.P. Morgan analyst Doug Anmuth did the same on Friday, naming Facebook as his “top large-cap pick” for the Internet sector in 2013. “We believe it still very early in Facebook’s mobile-advertising trajectory, and marketer feedback on mobile and News Feed ads is now more positive,” he wrote. Read: 4 top Internet stock picks from J.P. Morgan.

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Analysts and investors have raised questions about Facebook’s ability to monetize its fast-growing base of mobile users. But in October, the company sparked a rally when it disclosed that 14% of its ad revenue now comes from mobile.

Facebook also wrapped up 2012 with a series of product announcements and updates that underscored what analysts say is a clear bid to show it is looking for ways to make money from its 1 billion users. One of these was Facebook Gifts, a feature that allows members to send “real gifts”; it quickly won praise from analysts who pointed to its e-commerce revenue potential.

But not all of Facebook’s recent efforts were well received. The company’s announcement last month that it was testing a feature that would allow a user to have a message sent directly to another user’s main inbox for a fee prompted some head-scratching.

Then there was the much-criticized change of its privacy and advertising policies on Instagram, the photo-sharing service Facebook acquired last year. Users were particularly upset about a plan to give Instagram the right to do whatever it wants with users’ content. The reaction was so strong that Facebook eventually backed off the policy change, saying it was reverting to its original system.

There’s some speculation that the Jan. 15 event may be aimed at appeasing Instagram users, given reports of a drop in usage of the service. In any case, Anthony of Topeka Capital said Facebook faces elevated expectations for next week’s event.

“If they don’t deliver against expectations that they just created, you’re going to see a sharp selloff in the stock,” he added. “I think they know this, so I think whatever it is has to be meaningful.”

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